Give retailers a break, lawyers tell creditors
Lawyers have called for a break on winding-up petitions against retailers as they fail to pay creditors due to the outbreak. So far, retailers have been hit with 52 winding-up petitions since the beginning of the year, with the numbers accelerating since the coronavirus outbreak took hold, according to lawyers at RPC.
Such a move would give retailers breathing space as they try to mitigate the impact of coronavirus, but it would also hurt creditors including small suppliers.
Winding-up petitions submitted by one creditor could encourage other creditors to stop funding the business and put it under further strain.
It will also likely lead to a freezing of its business accounts.
Last month, Sir Philip Green’s retail empire Arcadia, which includes Topshop and Dorothy Perkins, was served a winding-up petition by Principle Systems, a marketing company, which designed props and furniture for its stores.
Although the dispute is likely to be resolved, it lays bare the tense relationships between retailers and their creditors.
Suppliers up and down the country and factories, predominantly in Asia, have had their orders cancelled by the likes of Marks & Spencer, Primark, New Look and Arcadia as they look to keep a lid on costs.
In some instances retailers have refused to pay suppliers for orders already on their way to their warehouses or stock that is already in their depots and was ordered before the pandemic.
New Look said it was suspending payments to suppliers for existing stock “indefinitely”, telling them in a letter that the stock can be collected by its owners.
Arcadia told suppliers that the disruption to its operations “has dramatically reduced the revenue coming into our business” after it shut all its stores.
Struggling Debenhams last week called in administrators to protect it from legal action by creditors, too.
Temporary closures of many courts, however, means new petitions will not be processed for some weeks.
Finella Fogarty, a restructuring and insolvency partner at RPC, added: “Even if the winding up petitions aren’t processed they scare off suppliers and possible funders and can have damaging effects on businesses.”
This article was originally published in The Telegraph, April 13 2020